Examination for FUNDAMENTAL ACCOUNTING Part I: Fill-In-The-Blanks (10*2=20 points) 1. A _______ is a collection of all accounts used by a business. 2. All cash payments by check are recorded in the ____________ journal. 3. Revenue and expense accounts are called ____________ because they are opened and closed every reporting period. The ____________ and ____________ are also ____________ accounts. 4 Liabilities are probable future payments of _________ or __________ that an entity is presently obligated to make as a result of past transactions or events. . 5 A _______ expenditure benefits only the current period and should be charged to expenses of the current period. A _____ expenditure has a benefit that extends beyond the end of the current period and should be charged to an asset. 6 Four closing entries: (1) close _______ balances in temporary accounts to income summary, (2) close _____ balances in temporary accounts, (3) close _________ to owners’ capital, and (4) close ____________account to owners’ capital. 7 An analysis that explains the difference between the balance of a chequing account shown in the depositor's records and the balance reported on the bank statement is called a bank __________. 8 A series of annual payments at equal time intervals is called an __________. 9 The application of analytical tools, such as determining liquidity, profitability, and solvency ratio, to general-purpose financial statements and related data for making business decisions is called financial statement __________. 10 Data from one or more direct competitors of the company under analysis are usually preferred for developing ________ for comparisons. Part II: True/False Questions (10*1.5= 15 points) 1. External transactions are exchanges between an organization and some other person or organization. 2. An account is record in an accounting system where increases and decreases in a specific asset, liability, or equity item are recorded and stored. 3. All receivables are classified as liability accounts and all payables are classified as asset accounts. 4. Making revising entries is an optional step in the accounting cycle.. 5. Recording sales discounts and sales returns and allowances separately form sales gives useful information to managers for internal monitoring and decision making. 6. During the accounting period, the assets increased by $4,000 and the equity increased by $1,000. For the balance sheet equation to balance, the liabilities must increase by $5,000. 7. Straight-line method of interest allocation is a method of amortization that allocates an equal amount of interest to each accounting period in the life of bonds. 8. A shares investment is classified as a long-term investment if it is not marketable or, if marketable, it is not held as an available source of cash to meet the needs of current operations. 9. Data from one or more direct competitors of the company under analysis are usually preferred for developing standards for comparisons 10. An investor need only use the dividend yield as a measure to evaluate the profitability of alternative share investments. Part III: Multiple Choices (10*2.5= 25 points) 1. Recording of financial transactions and events manually or electronically is a process of: a) bookkeeping b) information technology c) reporting d) auditing 2. The personal portable phone bill of James Bond, the owner of Double Zero Seven Company, was paid by issuing a check from the company’s checking account. No business calls had been made from James’ personal potable phone. What account must be debited for this transaction? a) James Bond, Capital b) Cash c) James Bond, Withdrawals d) Telephone Expense 3. Tony, the owner, deposited $100,000 in the company's bank account. He got the money from selling all of his IBB common stocks. Recording the transaction on the company books will require a) an asset to be debited, a liability to be credited b) a liability to be debited, an asset to be credited c) withdrawal to be debited, an asset to be credited d) an asset to be debited, revenue to be credited 4. Billy Gates, the owner of the Billy & Brothers Computer Services, was able to acquire a new computer, valued at $5,000, by establishing an account with the computer vendor, Bays Unlimited. There was no down payment. Recording the transaction will a) increase an asset, increase a liability b) decrease an asset, decrease a liability c) increase an asset, increase owner's equity d) decrease an asset, decrease owner's equity 5. The subtotals of the Income Statement columns of the work sheet are $6,200 and $4,900, respectively. If the subtotal of the Balance Sheet Debit column is $19,000, then the subtotal of the Balance Sheet Credit column should be a) $20,300 b) $1,300 c) $17,700 d) $14,400 6. The bookkeeper recorded a bank deposit at $560, but the bank recorded the deposit at its correct amount of $650. The bank reconciliation will require a(an) a) addition per book balance of cash b) deduction per book balance of cash c) addition per bank statement balance d) deduction per bank statement balance 7. When $800,000 of 10-year, 8% bonds that pay interest semiannually are sold when the market rate of interest is 12%, which of the following lines describes the calculation of the selling price of the bonds? (Pv = present value of $1, Pva = present value of $1 annuity). a) (Pv of 4% x $800,000) + (Pv of 4% x $80,000) = bond selling price b) (Pva of 12% x $800,000) + (Pv of 6% x $80,000) = bond selling price c) (Pv of 6% x $800,000) + (Pva of 8% x $80,000) = bond selling price d) (Pv of 6% x $800,000) + (Pva of 6% x $40,000) = bond selling price 8. Washington Company issues ten-year bonds with a par value of $100,000, 8% annual interest, were sold for $106,000 on September 30, when the market rate of interest was 7%. The issuer uses straight-line amortization of premium. The December 31, year-end adjusting entry for accrued interest will include a: a) debit to Interest Payable for $2,000 b) credit to Interest Payable for $1,850 c) debit to Premium on Bonds Payable for $150 d) debit to Bond Interest Expense of $1,850 9. Mishita Heavy Machine Company purchased a tractor by issuing a 5-year non-interest-bearing note for $100,000 when the market rate of interest was 10%. The note's fair value when issued using a 10% rate is $62,090. When the note was issued, the tractor was recorded at a value of: a) $100,000 b) $62,090 c) $90,000 d) $37,910 10. Here is information taken from the accounting books of Nikey Company: net sales were $360,000, the cost of goods sold was $180,000, operating expenses were $120,000, the ending balance of the Accounts Receivable account was $20,000. Now assume that the merchandise turnover ratio was 12.75. Then Nikey’s profit margin was: a) 16.67% b) 20.0% c) 40.0% d) 33.3% Part IV: Exercises & Problems (2*20 = 40 points) 1. Here is some information adopted from the accounting books of the Bailey & Brothers Co.: Net sales were $360,000. The cost of goods sold was $180,000. Operating expenses were $120,000. The ending balance of the Accounts Receivable account was $20,000. Assume that the merchandise turnover ratio was 12.75. Requirement: Calculate the profit margin of the Bailey & Brothers Co. 2. The Shakespeares Mining Company acquired an iron ore deposit for $2,000,000. The company's geologist estimated the deposit to contain 1,500,000 tons of iron ore. Extracting equipment with a 10-year service life and costing $450,000 was installed in the mine. At the end of the first year, 60,000 tons had been extracted. Requirement: Prepare the end-of-year journal entry to record the amortization of the extracting equipment.